Benefits for Employers Under the New Stimulus Law
After much handwringing, on December 27, 2020, President Trump signed into law H.R. 133, the Consolidated Appropriations Act, 2021 (the “Act”), a $2.3 trillion government funding measure containing a $900 billion stimulus package. One closely watched proposal that did not make it into the final stimulus package was a federal COVID-19 liability shield. But still, there are several beneficial measures in the Act that employers and companies should keep in mind, including additional Paycheck Protection Program (“PPP”) benefits, as discussed here, and the extension of several tax benefits covered in this article.
FFCRA Leave Mandates Expire But Tax Benefits Remain
Earlier this year, the Family’s First Coronavirus Response Act (“FFCRA”) imposed several COVID-19 related leave requirements on certain public employers and private employers with fewer than 500 employees. Under the FFCRA, qualifying employers had to provide up to 80 hours of paid sick leave and expanded leave benefits under the Family Medical Leave Act. Though the leave mandates imposed by the FFCRA expire on December 31, 2020, the Act provides an incentive for employers to voluntarily provide such leave into 2021. Under the Act, if employers choose to provide paid leave that would have been required by the FFCRA from January 1, 2021 through March 31, 2021, they can continue to claim a tax credit for such wages paid.
Extension of Employee Payroll Tax Deferrals
In August 2020, President Trump issued an executive order allowing employees to defer their portion of Social Security taxes (6.2%) on wages paid from September 1, 2020, through December 31, 2020, until April 30, 2021. The Act extends the due date for such deferred taxes to December 31, 2021. The Act does not, however, extend the timeframe from which an employee may defer wages paid – only wages paid through December 31, 2020, may be deferred.
Extension and Expansion of the Employee Retention Tax Credit
The CARES Act, passed in March 2020, provided employers an employee “retention credit” equal to 50% of qualified wages paid to employees through December 31, 2020. The Act significantly extends and increases the employee retention credit, as follows:
- The credit is now available for up to 70% (up from 50%) of employee wages paid through June 30, 2021 (extended from December 31, 2020).
- The credit is now available for up to $10,000 of qualified wages per employee, per quarter (up from $10,000 per employee in the aggregate).
- The Act extends employer eligibility for the credit to employers carrying on a trade or business during an applicable quarter, and whose:
- Operations are partially or fully suspended during any applicable quarter due to orders from a governmental authority limiting commerce, trade, or group meetings due to COVID-19; or
- Gross receipts for any calendar quarter are 80% or less (up from 50% or less under the CARES Act) than gross receipts for the same quarter in 2019.
- Certain governmental employers, including colleges, universities, and organizations established for providing medical or hospital care may now also qualify for the tax credit.
Under the Act, the credit is not available for any employees for which an employer is already receiving a credit under Code Section 51 or 45S, and wages for which an employer receives FFCRA tax credits continue to be ineligible for the employee retention credit. Employers receiving PPP loans also continue to be ineligible for the employee retention credit, but the Act instructs the Secretary of Treasury to issue guidance that would permit employers to qualify for the employee retention credit if their PPP loan is not forgiven.
Extension of Tax-Free Employer-Paid Student Loans
An employer can continue to pay or reimburse employees for up to $5,250 of student loan expenses on a tax-free basis. The CARES Act permitted employers, through December 31, 2020, to pay or reimburse employees for student loan expenses on a tax-free basis through a qualified educational assistance program. The Act extended this limited exception to December 31, 2025.
Employers with current qualified educational assistance programs must amend their plans to permit these tax-free student loan payments. Employers who do not currently maintain a qualified educational assistance program may adopt such a program, but to qualify for tax-free treatment, the program must be set forth in a separate written plan document and otherwise compliant with Code Section 127.
Flexibility for Health and Dependent Care FSAs
Under the Act, participants in health flexible spending arrangements (health FSAs) and dependent care flexible spending arrangements (DCAPs) can now carry over unused amounts or contributions from the 2020 plan year to the plan year ending in 2021. Similarly, health FSAs and DCAPs with plan years ending in 2021 may permit participants to carry over unused amounts or contributions to 2022. Finally, health FSAs and DCAPs with grace periods to extend such grace periods to 12 months after the end of the plan year.
The Act also now permits employees who cease participation in a health FSA during 2020 or 2021 to continue receiving reimbursements from any unused amounts or contributions through the end of the year in which the employee’s participation ended. This relief is in addition to the guidance published by the IRS in May 2020 that offers flexibility for health FSAs and DCAPs. Notably, the IRS’s prior relief expires at the end of the year, so the extensions offered under the Act are welcomed.